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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act.
Date of Report (Date of earliest event reported): May 3, 1994
COMMERCIAL INTERTECH CORP.
(Exact name of registrant as specified in its charter)
Ohio 0-588 34-0159880
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1775 Logan Avenue, Youngstown, Ohio 44501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 746-8011
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 2. ACQUISITION OF ASSETS
THE ACQUISITION
On May 3, 1994 (the "acquisition date"), Commercial Intertech Corp.
("TEC" or "Commercial Intertech") acquired pursuant to a Purchase
Agreement (the "Agreement")* all of the outstanding common stock of
Hydraulic Rochlitz GmbH ("HR") and Sachsenhydraulik GmbH Chemnitz
("SHC"). The two hydraulic companies are known as ORSTA Hydraulik.
The stock was acquired from the Treuhandanstalt ("THA"), the regulatory
agency of the Federal Republic of Germany responsible for the
privatization of the former East German state-owned enterprises.
TEC will account for the acquisition as a purchase transaction.
Under terms of the Agreement, TEC will tender no financial consideration
to acquire the shares of HR and SHC but will receive, in addition to the net
business assets of the two companies, cash contributions from the THA in the
amount of 59.0 million Deutsche marks (approximately U.S. $36.0 million) to
fund pre-existing capital investment programs and to cover estimated operating
losses over a period of two years. This additional consideration was
negotiated with the Treuhandanstalt based on the financial position of the
acquired companies as of January 1, 1994 (the "measurement date"). Cash
contributions available to Commercial Intertech on the acquisition date will be
equal to the negotiated total less amounts consumed by the operations of HR and
SHC during the interim period between the measurement and acquisition dates.
These contributions will be paid to Commercial Intertech in installments during
1994 and 1995. Commercial Intertech will make certain capital investments to
expand the business in future periods.
Commercial Intertech also agreed to the following obligations and
guarantees with respect to the operation of the acquired businesses:
a) to maintain a minimum employment level for a period
of three years; the level stipulated by the Agreement
is considered by TEC to be reasonable and necessary
for the intended use of the business,
b) to invest 39.0 million Deutsche marks (approximately
U.S. $23.6 million) in capital programs over a period
of four years,
c) to continue to operate the businesses for a minimum
of five years, and
d) to refrain from selling or transferring acquired land
and building for a period of six years.
* The following description of the terms of the Agreement is qualified in
its entirety by reference to the Agreement which is being filed as an exhibit
to this Current Report on Form 8-K.
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There exists no material relationship between TEC and any of HR,
SHC and the Treuhandanstalt or between any affiliates, directors or
officers or associates of such directors or officers of TEC and any of
HR, SHC or the Treuhandanstalt.
ORSTA Hydraulik has been a manufacturer of hydraulic cylinders, piston and
gear pumps, and industrial valves and its assets consist of receivables,
inventory, and property plant and equipment. ORSTA will provide complementary
products, engineering expertise and enhanced production capabilities to
Commercial Intertech. TEC intends to continue such use of the companies.
BACKGROUND INFORMATION
The Treuhandanstalt assumed ownership and control of
the hydraulic manufacturing facilities in 1990 after
the reunification of Germany. The facilities were
part of a monopolistic combine, which included a third
hydraulic component manufacturing facility. The THA
established limited liability corporations for each of
three manufacturing facilities. In addition, a holding
company, 100% owned by the THA, was formed to own 100%
of the three limited liability corporations and to
manage the operations and market the products.
HR and SHC owned and maintained non-manufacturing
assets such as employee residences, vacation properties,
sports and recreational facilities, and other
entertainment facilities. The costs of maintaining and
operating these facilities are included in the historical
operating results of HR and SHC. The Treuhandanstalt
purchased these facilities from HR and SHC prior to
the acquisition by TEC.
Subsequent to the assumption of control by the
Treuhandanstalt, HR and SHC have continued to make significant
sales to former East Block countries. The collection of
the receivables for these sales was guaranteed by the
Federal Republic of Germany under various foreign aid
programs. The Treuhandanstalt has funded working capital
and capital investment needs of HR and SHC, assuming
control after German reunification in 1990. The
government financing was not indicative of financing
a private entity could have obtained. Also, in
accordance with German government economic stimulus programs,
the Treuhandanstalt maintained employment levels
significantly in excess of the levels believed required to
operate HR and SHC efficiently. The effect of these
artificially high labor costs affected product pricing,
inventory valuation, and operating results in the
historical financial statements.
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Independent of the Agreement, the Treuhandanstalt
has commenced construction of a new building to house, in
one location, the HR operations which previously were
housed in three separate locations. The SHC was
consolidated into one structure from the multiple structures
maintained under the East German government. The other
locations and structures are not being acquired by TEC.
However, the significant costs associated with using and
maintaining multiple locations and structures are included
in the historical results of operations of HR and SHC.
The effects of these transactions and costs cannot reasonably
be separated from the historical financial statements
of HR and SHC. Further, the indemnification of operating
losses during the first two years after the date of
acquisition will result in operating results which are not
comparable to prior periods.
Of the total 59.0 million Deutsche mark cash contribution to be received
from the THA (as calculated on the measurement date), 51.5 million Deutsche
marks (approximately U.S. $31.0 million) has been designated as an
indemnification of estimated operating losses over a period of two years. The
amount of operating loss indemnification available to TEC will be adjusted for
cash consumed by the operations of HR and SHC between the measurement and
acquisition dates. It has been determined that, under the principles of APB
Opinion No. 16 and in accordance with the intent of the negotiated terms, such
indemnification will be recorded as negative goodwill and subsequently
amortized to income over the period benefitted. The timing of the expected
losses by fiscal period has not yet been determined and information concerning
the related amortization of negative goodwill by fiscal quarter will be filed
within 60 days of the date hereof.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
Because the companies acquired operated in a different environment under
the Treuhandanstalt control, Commercial Intertech requested and received from
the staff of the Securities And Exchange Commission a waiver to file audited
financial statements of HR and SHC for periods prior to the consummation of the
acquisition. Audited balance sheets as of April 30, 1994 are being prepared.
Due to changes in accounting from German to U.S. GAAP and in applying purchase
accounting guidelines to the April 30 balance sheet, the audited financial
balance sheets cannot be provided at this time. The audited balance sheets
will be filed within 60 days of the date hereof.
(b) Pro Forma Financial Information
Pro Forma Balance Sheet of TEC as of April 30, 1994, cannot be provided
until such time as the audits of HR and SHC have been completed. Such Pro
Forma Balance Sheets will be filed within 60 days of the date hereof.
(c) Exhibits
1) Purchase Agreement between Treuhandanstalt and TEC dated as
of May 3, 1994.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COMMERCIAL INTERTECH CORP.
(Registrant)
Date: May 17, 1994
/s/ Philip N. Winkelstern
___________________________________
Philip N. Winkelstern
Senior Vice President and
Chief Financial Officer
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Exhibit I
Translation from German
CA/gg
May 11, 1994
Certified Copy
(without Powers of Attorney and issued prior to
final approval of the Contract)
Notarial Seal
Notarial Deed
of the notary public
Roland Klein, CH-4001 Basel
Notarial Deed No. 025/1994
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Notarial Document
Negotiated at Basel on May 3, 1994
Before me, the undersigned Notary Public, practising in Basel,
there appeared today.
1. Mrs. Stephanie Fehlmann, born October 3, 1971, Monthal AG
in Bottmingen BL (Switzerland), secretary, personally known
to the notary public, acting for Treuhandanstalt - insti-
tution under public law - domiciled in 10100 Berlin, Leip-
ziger Strasse 5-7 (hereinafter referred to as the
"Seller"), on the basis of a power of attorney of May 3,
1994, the original of which was presented to the notary
public and a certified copy of which is to be attached to
this contract;
2. Mr. Gilbert Mott Manchester, born December 30, 1944 in
Ohio/USA, Youngstown (USA), identifying himself by his US
passport, acting as authorized proxy of Commercial Inter-
tech Corp., a company under the laws of Ohio, with head
offices in 1775 Logan Avenue, Youngstown, Ohio, 44501-0239
(hereinafter referred to as the "Buyer"), on the basis of
a power of attorney dated April 25, 1994, which is attached
to this contract.
Mr. Gilbert Manchester stated that he is not reasonably
fluent in the German language. Therefore, the notarial
deed was translated to him by the deponent.
3. Mr. Karl Heinrich Andres, Rechtsanwalt, Attorney at Law
(California), born September 15, 1945 in Bad Kreuznach,
identifying himself by his ID-card, with business address
at Doser, Amereller Noack - Baker & McKenzie -, Kleist-
strasse 23-26, D-10787 Berlin, who asserted that he is
fluent in the English language. The notary public advised
the deponent at 2) in English that he also can request a
written translation. The deponent waived such right. The
translator Mr. Karl Heinrich Andres declared that he is not
generally sworn in as translator. All deponents, in par-
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ticular the deponent at 2), waived their right to have the
translator sworn in by the acting notary public. In addi-
tion, the acting notary public verified the correctness of
the translation within the scope of his own English lan-
guage capabilities.
4. Mr. Otto Werner Lorenz, born November 7, 1940 in Grunau,
residing in Chemnitz, identifying himself by his ID-card,
acting as the managing director with sole power of rep-
resentation of Sachsenhydraulik GmbH Chemnitz, domiciled in
09116 Chemnitz, Zwickauer Strasse 221 (hereinafter referred
to as "Company No. 1"), presenting an excerpt from the
Commercial Register of the Local Court of Chemnitz, HRB
1468, dated May 2, 1994, which shows his authority to rep-
resent the above-mentioned company;
5. Mr. Michael Bachmann, Rechtsanwalt, born April 2, 1952 in
Bernburg, with business address at Andrestrasse 7, 09112
Chemnitz, identifying himself by his ID-card, acting not in
his own name but on the basis of a substitute power of
attorney dated May 3, 1994, issued by the deponent at 3)
who in turn acted for Hydraulik Rochlitz GmbH with business
address at in 09306 Rochlitz, Poststrasse 3 (hereinafter
referred to as "Company No. 2"), registered with the Com-
mercial Register of the Local Court of Chemnitz, HRB 119,
on the basis of a power of attorney dated May 2, 1994,
which includes the right to issue substitute powers of
attorney, which was presented to the notary public in its
original and of which a certified copy is to be attached to
this deed.
Company No. 1 and Company No. 2 will be jointly referred to
hereinafter also as the "Companies".
The persons appearing declared that they wished to conclude the
following
Purchase Contract
for the parties represented by them.
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Preamble
The Seller is the owner of the only share of each Company.
The share capital of Company No. 1 is DM 5 million. Company
No. 1 was created through the transformation of the nationalised
enterprise VEB Industriewerke Karl-Marx-Stadt. The objects of
the Company are to develop, manufacture and sell hydraulic prod-
ucts and pumps of any kind and description. The Company employed
264 people as per December 31, 1993, of which 8 were appren-
tices.
The share capital of Company No. 2 is DM 4 million. Company
No. 2 was created through the transformation of the nationalised
enterprise VEB Hydraulik Rochlitz. The objects of the Company
are to develop, design, manufacture and sell hydraulic working
cylinders. The Company employed 222 people as per December 31,
1993, of which 9 were apprentices.
The Buyer will on the basis of this Contract acquire the Com-
panies for the purpose of continuing and further developing
their businesses as provided in this Contract (the "Core-Busi-
nesses"). The Buyer has presented a corporate concept dated
March 3, 1994 on the basis of which the enterprises of the Com-
panies will be continued. To continue the Companies within 4
years after the Acquisition Date, the Buyer will invest DM 39
million in the enterprises of the Companies by the end of June
30, 1998, and save at least 366 full-time jobs, including
apprentices.
This having been said, the parties agree as follows:
Section 1
Share Purchase
1. The Seller sells to the Buyer the only share of each Com-
pany. The Buyer hereby accepts the sale.
2. To perform its contractual obligations under subclause 1,
the Seller hereby transfers
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a) the only share in Company No. 1) to the Buyer, which
hereby accepts the transfer;
b) the only share in Company No. 2) to the Company No.
1), which hereby accepts the transfer.
The transfer of the shares will take effect on the date of
the signing of this Contract (hereinafter referred to as
the "Acquisition Date").
Section 2
Purchase Price, Payment
The purchase price for each share being sold is DM 1.00, i.e. in
total DM 2.00 (in words: two German marks).
The purchase price must be paid within 14 days of the notarial
recording to the Seller's account no. 117 90 35 with Deutsche
Bank AG, Berlin office, BLZ 100 700 00, the system no. 66702 and
the reference THA Nr. 1130 and 1152 being indicated.
Section 3
Speculation Clause/Transfer
of Excess Proceeds
1. If the Companies sell any of the land defined in Annex 1
entirely or partially within six years of the Acquisition
Date, the Buyer shall, as an increase of the purchase
price, transfer to the Seller the full amount of the pro-
ceeds in excess of the value shown in the annual accounts
as per December 31, 1993. Annex 1 shows in detail how that
value of land and buildings is attributable to the differ-
ent pieces of land and parts thereof.
2. All legal transactions of any kind intended to procure any
third party to obtain direct or indirect ownership of, or
a beneficial interest in rem in, the land being sold in-
cluding the transfer of a majority interest in the Com-
panies to a third party who was not previously a share-
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holder, shall be regarded as a sale within the meaning of
the preceding clause. However, the transfer of shares in
the Companies to affiliates of the Buyer (definition in Section 9
Subclause 2) or the merger of the Companies with such af-
filiates shall be admissible. A sale of land shall not be
regarded as a sale within this meaning insofar as the pro-
ceeds are reinvested within 6 months in the Company con-
cerned, and left there. Such an investment must be an in-
vestment within the meaning of Section 9 subclause 2, without
such investments counting towards the amount to be invested
according to Section 9 subclause 2. The above exception shall
therefore apply only once the amount of DM 39 million has
been invested. The Buyer must show and prove that the
conditions set out in sentence 3 have been fulfilled. Fur-
thermore, transfers of the land defined in Annex 1 to af-
filiates of the selling Company shall not be regarded as
sales within the afore-mentioned meaning, provided that the
full value of the land continues to be available as loan
security to the business of the selling Company. If due to
the transfer such business and the land are separated, this
is to be ensured by authorising a land charge in favour of
the Company continuing the business, in connection with the
conclusion of the purchase contract, in the amount of the
land value, and by applying for an appropriate entry in the
Land Register and surrendering the mortgage certificate (Section
1117, Section 1192 BGB). The Buyer guarantees that, in cases of
sentence 5, the obligations arising from Section 3 will be
imposed upon the transferee or its successor in law, and
any purchase price increase will be paid to the Seller.
3. If the agreed purchase price is lower than the market
value, the amount by which the market value at the time of
the sale exceeds the value referred to in subclause 1 shall
be paid to the Seller as an increase of the purchase price.
4. If the parties cannot agree on the market value, it shall
be determined by a land evaluation expert. If the parties
cannot agree on the person of the expert, the expert shall
be appointed by the Berlin Chamber of Industry and Commerce
at the request of either party. The costs of the expert
shall be borne by the partied pro rata their respective
loosing.
5. The excess proceeds shall be due for payment on the
notarial recording of the sale of the land, and shall bear
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interest at a rate of 3% per year above the discount rate
of Deutsche Bundesbank.
6. The purchase price increase shall not comprise value
increases arising from the Buyer's or the Companies'
expenses, in particular the contractually agreed invest-
ments. Expenses covered by funds according to Section 11 shall
not be taken into account. The land evaluation expert
shall, if appropriate, state whether and if so to what
extent value-enhancing expenses incurred by the Buyer or
the Companies have increased the market value of the land.
7. The Buyer shall promptly inform the Seller of all circum-
stances that could justify a claim to payment of an
increased purchase price. Furthermore, through suitable
instructions to the management of the Companies, the Buyer
must ensure that the Companies will also promptly inform
the Seller of the circumstances which could justify a claim
to payment of an increased purchase price. The provision of
Section 17 (1) shall remain unaffected.
Section 4
Financial Regulations as between
the Companies
1. Company No. 1:
a) The Seller undertakes, as a capital contribution, and
with effect from before the time of the transfer of
beneficial ownership of the share to the Buyer, to
clear Company No. 1 of the debts to Deutsche Indu-
strie- und Handelsbank in the amount of DM
1,330,098.00 and to Dresdner Bank AG in the amount of
DM 209,304.00 as existing on December 31, 1993, plus
interest, up to a maximum amount of DM 1,539,402.00
with interest thereon starting from January 1, 1994.
In addition, there were on December 31, 1993 bank
liabilities towards Dresdner Bank AG in the amount of
DM 2,510.29. Dresdner Bank AG had opened for Company
No. 1) a credit line at up to DM 3,520,000,00 for
purposes of interim financing of outstanding accounts
receivables from land sales. Concerned were a land
sales agreement dated July 30, 1992/September 28, 1993
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with B.F.U.-Finanz- und Unternehmensberatungs GmbH
Regensburg (UR-Nos. 203/1992 and 434/1993 of notary
public Koltermann, Berlin) and a land sales agreement
dated August 31, 1992/March 1, 1993 with Clean Car
Autoservice GmbH & Co. KG, Dusseldorf (UR-Nos. 93/1992
and 40/1993 of notary public Lautenschlager, Berlin).
The Company at 1) has assigned such accounts receiv-
ables to Dresdner Bank AG as security. The account
receivable under the former contract was fully paid
during the first calendar quarter 1994. The parties
assume that these represent the entirety of the lia-
bilities of Company No. 1) to banks as per December
31, 1993; should this assumption prove wrong then the
Seller shall be obliged to also clear any additional
debt of this kind.
b) The Seller hereby releases, as a capital contribution
and with effect from before the time of the transfer
of beneficial ownership of the share to the Buyer,
Company No. 1 from all shareholder's loans plus
accrued interest owed on December 31, 1993, in par-
ticular the loan granted in the amount of DM
56,460,000.00 (in words: fifty-six million four hun-
dred and sixty thousand German marks) plus interest
with effect from December 31, 1993, insofar as the
Seller is not obliged to do so already because of the
purchase of the land and of receivables of Company No.
1. Moreover, the Seller releases Company No. 1 from
all claims to suretyship remuneration that have not
yet been discharged. The Company accepts the offer to
conclude the release agreement.
c) The other obligations of Company No. 1 shall remain
unaffected. With regard to any liabilities towards
the ORSTA-Hydraulik AG and its affiliates see the
statements in Annex 0 (6 pages)
2. Company No. 2:
The Seller undertakes, as a capital contribution and with
effect from before the time of the transfer of beneficial
ownership of the share to Company No. 1, to clear Company
No. 2 of all debts plus accrued interest which the Company
owed to banks and other financing institutions on December
31, 1993, including those originating in the time before
July 1, 1990 (so-called old debts), insofar as the Seller
is not obliged to do so already because of the purchase of
the land and of receivables of Company No. 2. The old debts
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appear in the annual accounts as per December 31, 1993 with
an amount of DM 15,543,000.00 (in words: fifteen million,
five hundred and forty-three thousand German marks). The
debt clearance shall be accomplished by the Seller's assum-
ing all liabilities of the Company towards Deutsche Kredit-
bank AG and by the Seller's seeking from Deutsche Kredit-
bank AG the approval of such debt assumption. Until such
approval has been rendered or if it is refused, Sec. 415
Subsec. 3 of the German Civil Code shall apply. The other
obligations of Company No. 2 shall remain unaffected.
Subclause 1 c Sentence 2 shall apply mutatis mutandis.
3. The Seller has issued the following guarantees for bank
debt of Company No. 1:
- towards Dresdner Bank AG, Chemnitz branch, in the
amount of DM 1,696,000.00 with a term expiring on June
30, 1994 and in the amount of DM 14,980,000.00 with a
term expiring on June 30, 1995 (the latter guarantee
which is earmarked for investments, has not yet been
utilized);
- toward Deutsche Industrie- und Handelsbank AG in the
amount of DM 1,304,000.00 with a term expiring on June
30, 1994.
The Seller shall partially repay such guarantees as per
subclause 1 by assuming the guarantee of debt in a total
amount of DM 1,539,402.00 including accrued interest up to
the time of debt assumption. As for the rest, e.i. to the
extent that Seller does not assume debt pursuant to
subclause 1, the Buyer shall arrange that the Company No.
1 obtains as quickly as possible, no later than until Sep-
tember 30, 1994, a release by Dresdner Bank AG, Chemnitz
branch, of the guarantor with regard to its obligations
under the guarantee. Until such release, the Buyer shall
indemnify the Seller upon first demand. Should the Sel-
ler's release not be accomplished on time, than the Seller
shall be entitled to reobtain a release from the guarantee
within the scope of payments pursuant to Sec. 11.
4. On January 1, 1994, the Seller assumed joint and several
liability towards Kreditanstalt fur Wiederaufbau (KfW) for
obligations of Company No. 2 under a credit agreement for
a credit of up to DM 7,083,000.--. Credit has not yet been
drawn. After the Acquisition Date, Company No 2 and the
Seller shall contact KfW to obtain a release of the Seller
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towards KfW. As between the Seller and Company No. 2, in-
ternally, the latter shall have sole liability. Should a
release of the Seller prove impossible, then the Seller
shall be entitled to achieve a release from its liability
by payment to KfW within the scope of Sec. 11.
Section 5
Major Assets Not Taken Into Account in the
Purchase Price Determination
1. The parties agree in assuming that the Companies will
retain title only to the real estate referred to in Annex
1 (land and building), and that they do not own any further
real estate, nor have any transfer claims in view of real
estate according to the 5th regulations to implement the
Treuhand Act or to other legal provisions. Furthermore, the
parties proceed on the assumption that the Companies have
no claims arising from subsequent evaluation clauses, spec-
ulation clauses or employment or investment or similar
clauses in land purchase or share purchase contracts con-
cluded after July 1, 1990 for privatisation purposes (in
particular no outstanding purchase price claims, subsequent
purchase price increases, or contractual penalties).
2. Should this assumption prove to be erroneous, the Companies
shall be obliged to promptly inform the Seller thereof, and
without receiving any further consideration to transfer any
such real estate not listed in Annex 1 without undue delay
to the Seller or to a third party named by the Seller. The
same shall apply if it turns out that the Companies own any
patents, trade marks, copyrights, or other comparable
rights that do not relate to the Companies' current fields
of activity. Any transfer claims under the 5th Implementa-
tion regulations or claims arising from the clauses
referred to in the second sentence of subclause 1 above are
hereby assigned as a precaution to the Seller, which
accepts this assignment. The reorganization support granted
by the Seller under this Contract shall constitute valuable
consideration for this assignment. All transfer taxes and
third-party costs necessary in connection with transfers
under this Sec. 5 shall be borne by the Seller. Transfers
shall be structured such that they cause no legal or tax
disadvantages to the transferring Company.
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Section 6
Warranties
1. The Companies exist with legal validity. No comprehensive
enforcement proceedings have been instituted with respect
to the Companies. The Buyer is aware of the economic and
financial situation of the Companies.
2. The Seller is the sole owner of the shares being sold.
These shares have not been pledged or assigned by way of
security, nor are they subject to any option rights or
rights of usufruct or limitations under the Bankruptcy
Code, the Creditor's Avoidance of Transfers Act, or the
Comprehensive Enforcement Regulations, nor are they subject
to any other third party rights. The legal relations
between the parties in the event of any assertion of claims
under the Law to Settle Open Property Questions are dealt
with exhaustively in Section 8, and any such assertion of claims
shall not constitute a violation of warranties.
3. The Companies are the sole owners of the land listed in
Annex 1, and this land is not encumbered with any mortgages
or other land charges or other third party rights which
substantially restrict the land's usability for purposes of
the Companies' business. The two pieces of land of Company
No. 2) mentioned in Annex 1 under 1.1.1 B (Flurstuck 735,
735a) shall be exempted from this warranty. Furthermore,
the Companies are with one exception: (The Bosch machine)
the owners of the fixed assets listed in Annex 2 (3 pages)
which are not subject to any third-party rights. Sentence
3 of subclause 2 applies analogously. between January 1,
1994 and the date of signing of this agreement, the com-
panies have not divested of any tooling machines which were
reflected under the fixed assets in their balance sheets as
of December 31, 1993, expect for machines listed in Exhibit
2 a (12 pages).
4. No further warranties are given with respect to the shares
being sold or the assets or the legal relations of the
Companies.
5. The parties cannot assert any rights against each other, on
any legal grounds whatsoever, in view of a violation of
ancillary or pre-contractual obligations, except in the
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case of an intentional violation of the obligations of a
party or of its organs or of the persons employed by such
party in the performance of its obligations.
Section 7
Legal Consequences in the Event of Violation
of Warranties, Liability, Limitation
1. If any of the warranties given in Section 6 are incorrect, the
Seller must restore the situation that would exist if the
warranties were correct. However, the Buyer's claims under
sentence 1 can be asserted only if the amount of the claim
exceeds DM 10,000.00 in any individual case, or the amount
of all claims justified in view of either of the Companies
exceeds DM 50,000.-- in total.
2. Any and all further claims going beyond the claims referred
to in Section 7 (1), in particular damage claims and statutory
cancellation rights, shall be excluded. Moreover, the
amount of all claims regarding either Company shall be
limited to DM 1,0 million.
3. All of the Buyer's claims under this Section 7 must be asserted
against the Seller in writing no later than on December 31,
1995 unless otherwise agreed in this Contract. No claims
can be asserted later. If duly asserted, these claims shall
be time-barred 6 months after being asserted.
4. Exempt from the restrictions of this Section 7 are all claims of
the Buyer for performance or for indemnification under Section Section 4
(1) and (2), 5 (2) (the last two sentences) , 8 (2), 10 (2),
11, 13 and 14 of this Agreement.
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Section 8
Legal Relations in the Event of Claims
Under the Law to Settle Open Property Questions ("VermG")
1. The parties do not know of any notifications of retransfer
claims according to the Property Law. The Seller made
inquiries thereon with the competent authorities. The
parties therefore believe that the sale and the transfer of
the shares being sold do not constitute a violation of the
restraint on disposition under Section 3 (3) VermG. The parties
assume that claims according to the Property Law can also
not be successfully asserted against the Companies, but
that any claimants will be limited to compensation.
2. Should claims to retransfer of ownership based on the Prop-
erty Law relating to land or buildings nevertheless be
asserted against the Companies contrary to the parties'
expectations, the Buyer shall promptly inform the Seller
thereof. The Buyer shall then consult the Seller and defend
the Companies accordingly against such claims. Should such
claims be enforced against the Companies, the Buyer may
demand compensation from the Seller in the amount of the
value of the land in question and the buildings as shown in
Annex 1. If the Buyer cannot reasonably be expected for
economic reasons to continue the Contract after claims to
retransfer of ownership have been implemented, the Buyer
can also cancel the Contract instead of demanding compensa-
tion. In the event of cancellation, the mutual performances
shall be returned. Any further claims, e.g. to reimburse-
ment of expenses or outlays, in particular for investments
made, or damage claims, shall be excluded. However, any
value compensation that may be paid according to the Prop-
erty Law shall be for the Buyer.
3. Claims to a reduction of the purchase price or to the can-
cellation of the Contract must be asserted in writing
against the Seller within three months of the retransfer of
ownership. Otherwise, the Buyer cannot assert any such
claims. If duly asserted, these claims shall be time-bar-
red 6 months after being asserted. In the case of public
restitution claims according to Art. 21 (3), Art. 22 (1)
sentence 7, Art. 26 and Art. 27 of the Unification Treaty,
subclauses 1 and 2 shall apply analogously.
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Section 9
Job Guarantee, Contractual Penalty
1. The Buyer undertakes to maintain at least 366 full-time
jobs, including apprentices, at the Companies for a period
of 3 years after the Acquisition Date. Part-time workers
shall count on a pro rata basis in accordance with the
regular working time under the applicable collective agree-
ments. The number of full-time jobs and apprenticeships is
calculated as the average of the number at the end of the
annual quarters. The parties agree that this obligation
represents a major factor in the conclusion of this Con-
tract. They therefore agree on a contractual penalty to be
paid if the Buyer fails to discharge or to fully discharge
this obligation. In the event of partial or complete fail-
ure to discharge this obligation, the Buyer must pay a
contractual penalty of DM 24,000 per year of employment for
every missing full-time job.
2. The Buyer further undertakes to invest DM 39 million in the
enterprises of the Companies within 4 years after the Ac-
quisition Date, and not to withdraw these investments. An
investment within the meaning of this Contract is any ex-
penditure which is capable of being used to improve the
asset position and is allocated over a period of at least
three years. Investments made on the basis of relations
with an undertaking associated with the Buyer shall not
count against this investment obligation, with the excep-
tion of the investments described hereinafter. A building
with an investment volume of approximately DM 13 million is
to be built on the business premises of Company No. 2). It
is intended to obtain an offer also from Commercial
Intertech S.A., Luxembourg, an undertaking associated with
the Buyer, for part of the work with an approximate value
of DM 6,0 million. Should an order be placed, the
investment shall - insofar as it is made on the basis of
the relations with Commercial Intertech S.A. - count
against the above investment obligation only to the extent
that acquisition costs are reasonable. The assessment of
reasonableness shall be based on Section 252 (1) No. 3, (4)
Section 253 (2) 2, (3) 2, Section 255 (1), (2) HGB.
Associated undertakings within the meaning of this Contract
are the cases listed in Section 15 AktG (German Stock Corporation
Act), but without limitation to undertakings domiciled in
Germany. In the event of partial or complete failure to
discharge this investment obligation, the Buyer undertakes
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to pay a contractual penalty in the amount of 50% of the
amount by which the investments made fall short of DM 39,0
million.
3. The Buyer undertakes to continue, or have continued by an
affiliated Company, the business of the Companies for at
least five years after the Acquisition Date, taking into
account the above obligations. The Buyer undertakes to pay
a contractual penalty of DM 500,000.00 per year in the
event of a violation of the obligation to thus continue
these undertakings.
Section 10
Sale of Assets Not Required for Operations
1. The fixed assets listed in Annex 3 6 pages) will no longer
be required for the business operations of the Companies.
However, temporarily, the Companies may use some of the
pieces of land free of rent. The assets no longer required
have therefore been sold at their fair market value to the
Seller on the basis of market value appraisals, and payment
was made through a set-off against shareholders' loans or
through the debt-releasing assumption of liabilities to
banks. These assets were not taken into account in deter-
mining the purchase price for the present purchase con-
tract.
2. The Seller shall indemnify the Companies from and against
all legal and tax claims and obligations which relate to
land sold pursuant to subsec. 1 prior to the Acquisition
Date and which lead to payment obligations of the Companies
in excess of DM 50,000.--. The provisions of the land
purchase contracts of May 2, 1994 concluded between the
Seller and the Companies shall remain unaffected.
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Section 11
Financial Aid
1. The Seller hereby commits, in its capacity as sole share-
holder, to grant to Company No. 1 non-repayable financial
aid in the amount of DM 59,0 million to improve the Compa-
nies' equity; an amount of DM 51,5 million out of this
financial aid is designated as indemnification for operat-
ive losses of the Companies expected for the first two
years following the Acquisition Date. The claim cannot be
assigned.
2. The financial aid shall be effected through a release from
shareholder's loans granted to Company No. 1 and by payment
to Company No. 1 of the remainder as follows:
a) After January 1, 1994, the Seller had granted as a
loan, by way of several instalments, a total of DM
14,9 million to Company No. 1. These payments do not
contain any social plan contributions. The Seller
herewith releases Company No. 1 as capital contribu-
tion from these loans and interest thereon. Company
No. 1 herewith accepts such release.
b) The remaining DM 44,1 million of the financial aid
shall be provided to Company No. 1 as shareholder con-
tribution of the Seller in instalments on the follow-
ing terms:
DM 15,100 million on May 31, 1994, however, not
earlier than four weeks after this contract has
become effective. A portion in the amount of DM
5,55 million shall be effected by the Seller ac-
cepting an application by which the Company No. 1
in late April 1994 has applied for an increase of
the shareholder's loan in the afore-mentioned
amount. The Seller shall pay out the loan in the
afore-mentioned amount until the end of May, and
herewith releases the Company No. 1 from its
obligation to repay and pay interest. The Com-
pany No. 1 herewith accepts such release;
DM 15 million on August 31, 1994;
DM 10 million on March 31, 1995;
DM 4 million on June 30, 1995.
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The different instalments can only be requested to be
transferred to accounts of Company No. 1 to be named
by the Buyer.
Furthermore, payment of the 2nd to 4th instalment shall be
possible only if:
a) the Companies have neither applied for comprehensive
enforcement measures nor are subject to such measures,
and no application for the institution of bankruptcy
proceedings has been dismissed for lack of assets, and
b) the obligations arising from Section 9 (1) have been dis-
charged by the end of the calendar quarter preceding
the payment dates set forth above.
Provided that the buyer proves that the conditions for
payment have been fulfilled, payment shall be made within
four weeks after such proof. A simple letter from a char-
tered accountant that must not be older than 4 weeks shall
be sufficient for such proof.
3. To the extent that the loan payments as referred to in
subclause 2 lit. a) or the total cash balance of DM 16,4
million within the meaning of Section 266 (2) B IV HGB available
on December 31, 1993 with the Companies (this does not
reflect any funds provided by the Seller for purposes of
funding a social plan) has been utilized
- to retire bank debt or pay interest thereon,
- to repay shareholders' loans or pay interest thereon,
- to pay costs allocated by the holding company,
- for repairs, clean up cost, demolition, survey and
legal expenses invoiced to the Companies by third
parties and/or for investments of more than DM 100,000
in total concerning the land according to Annex 3 or
comparable expenses invoiced by third parties for the
Companies business activities which do not concern the
core-business,
- all payments to the Seller
then the financial aid referred to in subclause 1 shall be
increased by the amount of funds so utilized. Any refund of
interest paid by the Seller to the Companies shall, how-
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<PAGE> 18
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ever, be taken into account to correct the result of debt-
release under Section 4 as well as any proceeds collected by the
companies between January 1, 1994 and the Acquisition Date.
The Buyer shall, at its expense, cause a CPA of its choice
to audit the utilization of the afore-mentioned (loan and
cash) funds. If the audit proves an increase or decrease of
the financial aid ("adjustment") under this subclause 3,
the Buyer shall submit to the Seller the audit report. The
Seller shall then be entitled to have the utilization of
funds audited, at its expense, by a CPA of its choice with-
in 30 days of receipt of the Buyer's audit report. If both
CPAs fail to agree, within a further 30 days, on a joint
audit result, then a third CPA, who is to be appointed by
the Institute of CPAs at either party's request, shall make
a final decision as arbitrator. An increase of the finan-
cial aid is payable within ten banking days after receipt
by the Seller of the respective payment claim. A reduc-
tion, if any, shall be deducted from the next instalment
then payable under Subclause 2. If the Seller causes an
audit to be made under this subclause 3, then payment shall
be due within ten banking days after the date on which both
CPAs agree on a payment claim or on which the third CPA
determines such claim.
Section 12
Granting of Shareholder's Loans,
Other Obligations of the Buyer
1. The Buyer undertakes, in its own name or through affiliates
within the meaning of Sec 15 AktG, to grant to the Com-
panies shareholder's loans in the total amount of DM 13,0
million within three months after all permits required
under this Contract have been obtained, on the following
terms. The shareholder's loans must have a term of at least
five years, and must be interest-free for a period of at
least 5 years after disbursement. The Buyer or the lender
associated with the Buyer shall neither be entitled to have
rights relating to assets of the Companies assigned or
transferred to itself as security for the loan, nor be able
to prematurely terminate the loans for important reasons in
the event of any deterioration of the economic situation of
the Companies.
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2. Should the Buyer not discharge the obligations arising from
subclause 1 within four months after all permits required
under this Contract have been granted, or have the loan
repaid to itself prior to the expiry of the commitment
period, or charge interest, the Buyer shall owe the Seller
a purchase price increase in the amount not paid to the
Companies contrary to the obligation under subclause 1, or
prematurely repaid in full or in part, or paid as interest.
3. The Buyer and the Companies shall be obliged not to resolve
to distribute dividends from assets of the Companies to the
shareholders and/or to persons/undertakings close to them,
nor to associated undertakings, for the business years up
to and including 1998, nor to make any such dividend dis-
tributions, unless they be profits earned.
4. Furthermore the Buyer and the Companies undertake for the
time up to and including 1998 not to distribute any funds
of the Companies from capital measures such as capital
reductions to the shareholders or to any third party for
shareholders' account.
5. No loans or suretyship or debt assumption or guarantees
must be granted by the Companies to the Buyer, to undertak-
ings associated with the Buyer, or to persons close to the
Buyer (Section 15 AO, Section 1 AStG), prior to December 31, 1998;
transactions of this kind between the Companies shall be
permitted.
6. All relations between the Companies on the one hand and, on
the other hand, the Buyer or undertakings associated with,
or persons close to, the Buyer must be based on clearing
prices admissible under tax law, i.e. as in an arm's length
transaction.
7. The Buyer undertakes to raise the shareholder's loan ac-
cording to subclause 1 to the extent that the Companies
assume obligations by December 31, 1998 arising from the
delivery of used goods capable of being capitalized, to the
Buyer, any undertaking associated with, or person close to,
the Buyer.
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8. In the event of a violation of the above obligations under
subclauses 3 et.seq., the Buyer shall owe a purchase price
increase equal to the amount which the Companies paid in
violation of such obligations, for instance in the amount
of a distribution made from funds other than profits
earned, or in the amount of a loan granted contrary to this
Contract. However, if relations are not transacted on an
arm's length basis as provided in subclause 6, the Buyer
guarantees that the Company concerned will be compensated
for the disadvantage plus interest at the usual bank rates;
in this case, the purchase price shall not be increased
pursuant to sentence 1.
Section 13
Social Plan Costs
1. The Seller undertakes to bear all social plan costs under
the social plan of April 23, 1994, for a reduction of the
work force to 387 employees, not including apprentices, by
June 30, 1995. No share of costs will be assumed in
respect of any dismissals thereafter. The assumption of a
share of costs shall also apply only in the case of the
dismissal of staff already employed by the Companies on the
Acquisition Date. In addition, the Seller shall, within the
limits of the reduction of the workforce described above,
pay the funds agreed under the social plan of April 23,
1994, for ABW GmbH, Leipzig, and ABS Werkzeug- und Textil-
maschinenbau GmbH Chemnitz. In these cases, such funds
shall be paid exclusively to the ABS company on presenta-
tion of proof.
2. The Seller hereby releases the Companies from all condi-
tional obligations for repayment of social plan subsidies.
Amounts not utilized shall be repaid forthwith. The Com-
panies hereby accept the release.
20
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Section 14
Contamination
1. Contamination is any pollution of the ground by
contaminants from industrial or commercial use that repre-
sent a danger to public safety and order.
2. The Buyer must join the application made by the Seller for
a release from responsibility for environmental damage
caused prior to July 1, 1990 under Article 1 Section 4 (3) Envi-
ronmental Framework Law as amended by Article 12 of the Act
to Remove Obstacles to the Privatization of Undertakings
and to Promote Investments, and make all reasonable efforts
to pursue the matter. This includes filing an objection or
entering an appeal against an entirely or partially nega-
tive release notice, provided there is a reasonable chance
of success. The measures necessary in this connection must
be agreed on with the Seller. The Seller shall bear costs
only insofar as the application is entirely or partially
rejected by a final and non-appealable decision. To the
extent that the Land or a third party assumes any costs
related to the proceedings to obtain a release, such pay-
ments shall apply to the Seller's cost share. Any payments
already made by the Seller shall be returned. The Seller
supports the administrative agreement reached between the
Federal Government and the Lander with respect to the
apportionment of costs on the basis of the release accord-
ing to the Environmental Framework Law.
3. Insofar as no release is granted, the following shall
apply:
a) The Companies shall invite tenders from at least three
qualified experts for a risk study. The expert opin-
ion must establish the extent to which there is a dan-
ger to public safety and order, and determine the
nature, scope, location, time and costs of measures
that must be taken to meet this danger.
The risk study is to be based on the assumption of an
unchanged use of the land. The choice of the expert
will be agreed on with the Seller. If the contracting
parties cannot agree, the expert shall be appointed by
the President of the Federal Environmental Office at
the request of either party. The parties shall each
bear half of the expert's costs.
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<PAGE> 22
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b) To put into effect the measures required by the
expert, the Companies shall define performance spec-
ifications to be accepted by the Seller. On the basis
of these performance specifications the Companies will
obtain three offers from suitable undertakings. An
order will be placed if the Seller approves. Such
approval shall require at least detailed specificat-
ions showing the nature and amount of costs and the
due dates.
The Companies will be the principal. The Seller shall
according to an agreement between the Companies and
the Seller be informed regularly of progress achieved
through these measures and of the costs incurred. The
Seller reserves the right to modify its payment obli-
gations in the event of any deviations from the per-
formance specifications. Acceptance of the measures
shall be effected jointly by the Companies and the
Seller on the basis of the performance specifications.
The Companies shall at any time allow an inspection of
all business papers relating to this.
c) In the event of imminent danger, the Companies must
take immediate action. The Seller shall be promptly
informed thereof. The consent of the relevant envi-
ronmental authorities to the scope of the measures
must be obtained promptly.
d) If the removal of any contamination takes place in
connection with construction, a distinction shall be
made between construction costs that would have been
incurred anyway, and clean-up costs incurred in view
of the contamination. Only such clean-up costs shall
be assumed by the Seller.
e) The costs for the measures referred to hereinbefore
shall be borne as follows:
aa) the Companies a basic amount of DM DM 1,0 million
in total;
bb) costs in excess thereof up to an amount of DM 3,0
million in total: the Companies 20%, and the
Seller 80%;
cc) the Seller any costs in excess of DM 3,0 million.
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4. If any obligations are imposed by the competent authorities
in connection with the release under the Environmental
Framework Law, the above cost agreement shall apply analog-
ously.
5. Clean-up measures must be carried out as cost-consciously
as possible under the prevailing circumstances. The Compa-
nies' own expenses shall be refunded only if they are lower
than third-party costs would be for the same measures.
6. The above clauses regulate the apportionment of costs in
every respect. In particular, there is no obligation to
bear costs for the Companies' general administrative over-
head, for hindrances or work stoppages and/or for lost
profits.
7. Claims on the basis of this provision must be asserted
against the Seller, at least in principle, by December 31,
1995, failing which any later assertion of claims shall be
excluded. Such claims shall be time-barred six months
after being asserted in writing.
Section 15
Patents, Trademarks
1. ORSTA-Hydraulik AG has transferred 17 patents and the
trademark Orsta to the Companies prior to the transfer of
the Companies to the Seller as contribution to equity by
notarial dees Nos. 572 - 589/1994 of Notary Public Dr.
Ritter, Dresden.
2. The Buyer knows that Hydraulik Markranstadt GmbH has a
right to also use the ORSTA trademark until December 31,
1995.
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Section 16
Merger Control
The Buyer declares after a careful review that the merger
need not be reported according to Section 24a GWB (German Act
against Restraints of Competition) . The Buyer shall be
obliged to notify the Federal Cartel Office at its own
expense if necessary.
Section 17
Review Clause
1. The Buyer shall prove to the Seller at least once a year by
June 30th at the latest, and for the last time on the
expiry of the guarantee period in each case, that the con-
tractual provisions relating to
- the transfer of excess proceeds in the event of the
sale of land and buildings according to Section 3,
- the job guarantee under Section 9 (1),
- the investment guarantee under Section 9 (2),
- the financial aid according to Section 11,
- the granting of shareholder's loans, other obligations
of the Buyer under Section 12, and
- social plan costs according to Section 13
- contamination pursuant to Section 14
have been complied with, Proof must be provided in the form
of a certificate by a chartered accountant. Furthermore,
upon its reasonable request, the Seller must be given
details necessary to check compliance with these provi-
sions. Moreover, the Companies/Buyer must provide to the
Seller the tax audit reports for the periods up to 1998
without being specially requested to do so to the extent
they relate to the pricing of inter-Company transactions
within the meaning of Section 12 subclause 6. If the tax audit
report makes no reference to intercompany pricing, then
such fact shall be confirmed in writing to the Seller by
24
<PAGE> 25
- 25 -
the chartered accountant. The conclusion of contracts
which can trigger rights of preemption, repurchase rights
or cancellation rights on the part of the Seller or payment
of excess proceeds to the Seller must be reported to the
Seller in time prior to conclusion. Each party shall bear
its own costs.
2. Should the Seller become aware of any facts or circum-
stances indicating that the Buyer and the Companies might
not have discharged their obligations arising from this
Contract, the Seller shall, in addition to the rights in
connection with the Buyer's reports concerning implementa-
tion, be entitled to have the facts and circumstances in
question cleared up by auditors of its choice. The auditors
must be allowed to make the investigations that they wish
to make, and especially to make inspections and to see
documents. The costs shall be borne by the Seller unless
the suspicion that obligations have not been discharged is
confirmed by the auditors. In this case, the Buyer shall
bear the costs.
Section 18
Final Provisions
1. Any change of, or addition to, this Contract including this
written-form requirement must be in writing in order to be
legally effective except where mandatory law imposes more
stringent formal requirements.
2. Should any provision of this Contract be or become invalid
or impracticable, the validity of the remaining provisions
of this Contract shall remain unaffected thereby. The
invalid or impracticable provision shall be deemed to have
been replaced by a provision which to the furthest possible
extent serves the economic purpose of the invalid or im-
practicable provision. The same shall apply where the Con-
tract turns out to contain a gap.
3. The sales tax incurred in connection with the conclusion
and implementation of this Contract and the notary's fees
shall be borne by the Buyer.
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- 26 -
4. This Contract shall supersede any and all earlier agree-
ments reached on the subject matter of this Contract, and
all such agreements are hereby cancelled.
5. This Contract shall be governed by German law. The Regional
Court of Berlin shall to the extent allowed by law have
jurisdiction for all disputes arising in connection with
this Contract or about its validity.
Section 19
Condition Precedent
This Agreement shall be subject to the condition precedent
of its approval by the Seller. The notary public shall be
notified of such approval. In case such approval is not
received by the notary public within one month after the
notarization, then the approval is deemed to have been
refused. Upon receipt of the approval by the notary pub-
lic, the approval is deemed to have been received by all
parties.
To certify this, this notarial deed, after having been read in
German and continuously verbally translated by the deponent at
3) into the English language, has been approved by all depon-
ents, including the deponent at 2) who declared that he had
fully understood the translation and that he consented to this
Agreement, and has been signed by such deponents, including the
translator who by his signature certifies to have translated to
the best of his ability, and by myself, the Notary Public, under
my official seal.
Basel, this third May of 1994
(signatures)
26
